Stocks Are Bound Up In Politics

Remember what I said: Obama & Pelosicrats down = stocks up, Obama & Pelosicrats up = stocks down. Stocks are grinding upward in the face of lackluster economic data. What could be driving them higher? Maybe it the spike in Intrade's odds that the Republicans will take the House of Representatives in November. Like Mark Perry, I have no idea why the spike, but I believe it is highly relevant to stock prices.

On another note, Brian Wesbury points out the head fake that GDP might be giving us - robust consumer spending on imports actually makes GDP look worse, although the robust spending can hardly be negative. It is worth remembering that onerous compliance and regulatory burdens are a true cost, and when we layer on too many of these costs, imports of identical goods become more competitive instantly. If we cause compliance costs to rise more than the cost of transporting the imported substitute, then we hand the substitute an advantage. The foreign currency exchange rate doesn't have to change at all to tip the balance of competitive advantage in favor of imports over domestically produced goods. Add in an adverse foreign currency exchange rate move and it's a double whammy against US-made goods. That's what the Pelosicrats and Dear Leader are giving us - 4,000 pages of new regulations and a sinking dollar as the world gets hip to our fiscal recklessness - so we can expect imports to play an increasing role. The good news is that this obscures the good news in the economy providing a buying opportunity for those who can envision a new era of economic policy launching within the next few years.